Prolonged shutdown would threaten food stamps, school lunches

SACRAMENTO — Most programs run by California using federal dollars will be unaffected by a U.S. government shutdown, but if the funding stalemate drags into November, money for food stamps and reduced-lunch programs for schoolchildren could be imperiled, the state Finance Department reported Monday.

“There is no one-size rule that applies universally, but we believe that if it is a short-term shutdown the impacts will be minimal,” spokesman H.D. Palmer said.

State officials think that unemployment insurance benefits, Medi-Cal payments, federal support for special education programs and Title 1 education funding to schools with large concentrations of low-income students will be unaffected regardless of the length of a shutdown.

The same applies to transportation projects funded through the Federal Highway Trust Fund, which is financed through federal gasoline taxes, Palmer said.

He said there have been 17 federal shutdowns over the years but that only one — the 1995 shutdown during the Clinton administration — extended for a full month.

“If we go a long time, that’s when we start getting question marks,” Palmer said.

The state’s Supplemental Nutrition Assistance Program provides food stamps to about 4 million Californians each month. The free and reduced-price lunch program provides free lunches to more than 2 million California schoolchildren who live in families with incomes below 130 percent of federal poverty guidelines, or $25,389 for a family of three.

The state has enough reserves in those funds to carry out the programs through October, Palmer said.

“If we get to November, then it’s a question mark,” he said. “It’s unclear whether the money to the states would continue and whether the people who administer those programs would be classified as essential. Will there be federal employees to process payments and release funds?”

Palmer said the greater immediate concern of state officials is whether Congress will be able to reach an agreement to raise the federal debt ceiling by its Oct. 17 deadline.

Failure to raise the debt ceiling would force the federal government to default on some of its obligations, a situation that would almost certainly have severe adverse consequences in the financial markets.

After a political standoff in 2011 in which the debt ceiling was lifted on the day Treasury officials said the nation would exhaust its borrowing authority, ratings agency Standard & Poor’s lowered the United States’ credit rating. The downgrade was immediately followed by a 5.6 percent, one-day drop in the Dow Jones industrial average.

Palmer said 1 percent of taxpayers pay 41 percent of personal income taxes in the state and that their incomes principally are derived from capital gains from the sale of stocks and stock options.

Thus, a significant drop in stock market prices would have a substantial effect on state tax revenue, he said.